Australia resource stocks cheer new prime minister

TOKYO (MarketWatch) -- Shares of most resource names in Australia gained Thursday, defying minor weakness in Sydney, with traders optimistic that the nation's new prime minister will soften the blow of a hefty proposed tax on miners' profits.

Australian Prime Minister Kevin Rudd stepped down Thursday in favor his deputy Julia Gillard, who will become the nation's first woman leader as her Labor Party heads into a new election. See story on Australia's new leadership.

The news comes amid continued opposition to the so-called Resources Super Profits Tax that the government, headed by Rudd, announced last month. The RSPT would impose a 40% tax on miners' profits, beginning on July 1, 2012. See story on resources tax.

In its current form, the mining industry believes the planned tax would hurt business, cost jobs and dampen investment.

But on Thursday, Gillard called for a truce between the government and the mining industry regarding the planned tax.

"Australian's are entitled to a fairer share of our inheritance, the mineral wealth that lies in our grounds," she said. "But to reach a consensus, we need to more than consult, we need to negotiate and we must end this uncertainty that is not good for this nation."

She also said the government would end its advertising campaign in support of the tax and urged the mining industry to stop their own ads against the measure.

New hope

Australia's resource sector and analysts are hopeful Gillard will take a softer line than did Rudd.

"We expect new PM Gillard to announce a watered-down version of the RSPT in the coming weeks," Su-Lin Ong, senior economist at RBC Capital Markets, said in a note to clients.

"The most likely changes will probably be to the uplift rate ... tax rebate on losses over the investment life of projects, and concessions for particular commodities," she said. However, "we would not rule out any tinkering to the proposed 40% rate of tax."

Australia's resource shares outperformed most regional benchmark indexes. South Korea's Kospi was a strong contender, closing up 0.8%, while Japan's Nikkei Stock Average climbed 0.1%. The Shanghai Composite was 0.2% lower in late trading, but Hong Kong's Hang Seng Index was up 0.1%.

Waiting for change

Whether the nation's new leader will make the changes the mining industry is looking for remains in question.

RBC Capital Markets' Ong said there is also the "outside chance that the RSPT is dumped all together."

But that "would be poor long-term macro policy, as political survival dictates," she said.

Still, many analysts believe that a change to the tax is inevitable.

"The market is certainly thinking that Gillard will make concessions to the RSPT," said Ben Potter, market strategist at IG Markets in Melbourne.

"She has largely kept her powder dry regarding her opinions over the big issues, most importantly the resources tax," he said. "So whereas it was nearly impossible for Rudd to back flip on the tax, it's thought Gillard is much more able and willing to do so."

And "at the end of the day, if Labor wants to win the next election, we think they are going to have to make changes," Potter said. "So assuming changes do occur, then the miners will certainly benefit from the change in PM."

Richard Hastings, macro and consumer strategist at Global Hunter Securities, said the "sudden change in Australia with Julia Gillard of the Labor Party the newly designated PM has to conclude with some degree of compromise on mining taxes and environmental concerns."

The environmental reference was to failed efforts by the Rudd government to implement measures to scale back Australian greenhouse emissions.

If Gillard fails to make compromises, Hastings said that "the stiffness of the resistance from major industrials and business leaders will intensify -- and it would really rattle the ASX 200 at a time when the global markets seem to be itching for an excuse to hide under a rock."

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